3 Ways To Know When It's Time To Quit

Sometimes it's best to
just abandon a project and start fresh.Flickr/photosteve101

During my first tenure at Inc. (1998-2002), I could count on one
hand the times I heard an entrepreneur or CEO use the word
"iteration."

These days, it's practically all I hear. Innovators at companies
large and small have a strong grasp of "lean" startup principles.
They understand that the way to launch almost anything is to vet ideas with potential customers; to use
that feedback to build a minimum viable prototype or MVP; and
then to get further feedback on that MVP, so they can "fail fast"
and revise the MVP (i.e. put it through another iteration).
PayPal, for example, famously didn't hit on their idea until
their 10th iteration—what they called "Option J."

On one level, it's a wonderful business-world adaptation of the
way artists and designers often work: By drafting and revising,
until they've reached that sweet spot where their subversive
creativity intersects with consumer appeal.

Here's the challenge: It's sometimes hard to tell when a setback
or a failed iteration is just a wrong turn—a signal to "pivot"
from Option A to Option B or Option I to Option J—versus when it
is a sign that you should give up on an idea entirely.

'Fool's Gold White Space'

"The most frequent reason why innovators make wrong turns is the
lure of fool's gold white space," he writes.

He defines "fool's gold white space" as a seemingly attractive
market space that actually isn't attractive. As an example,
Anthony discusses the idea of "medical tourism." You're probably
familiar with the concept: Say a medical procedure in a foreign
market is significantly cheaper than it is here in the USA. Say
the cost difference is so significant that an insurance company
could pay for a patient's travel, lodgings, and the procedure—and
still come out ahead. It sounds like a superb business idea, does
it not?

That's what Innosight team members and their partners thought,
too. "However, not until they'd put in nearly six months of work
and spent considerable money on travel did they decide to do
something they should have done early on: run two simple,
high-ROI experiments to test key risks," write Matt Eyring and
Clark Glibert in a Harvard Business Review article summarizing
the ill-fated medical tourism venture.

After conducting these two tests — a seminar explaining the
concept to prospective patients, and a round of phone calls to
U.S. hospitals to gauge their unpublished discount prices — the
team learned that "patient demand was actually quite tepid… and
that U.S. hospitals were willing to lower their prices… if
patients paid cash up front."

The lesson here is that no matter how promising a market space
looks, the first thing you need to test for — obvious as it
sounds — is the risk that there will be no customers. And if you
learn that there will be no customers, well — it's a sign that
you should quit on the idea, brilliant though it first seemed.

When to quit, and when to try again.

The decision to quit on an idea — as opposed to moving on to the
next iteration — is never an obvious one. "You can never know
with absolute certainty," Anthony told me in a recent phone
interview. Even in the case of medical tourism, for example,
there was a potential market opportunity for a venture restricted
to regional medical travel (within the U.S and Mexico).

How, then, does Anthony make the call on quitting versus
iterating? He offers three pointers:

1. Use the 70% rule.

The U.S. Marine Corps trains young soldiers to gather enough data
so that they can be 70% confident in their decisions. The idea is
that, in the fog of war, 100% confidence or anything close to it
won't be possible. Better to act now with 70% confidence than to
wait indefinitely to amass 100% confidence. So if you're 70%
confident that you should continue, by all means, do so.

2. Get specific evidence of customer demand.

If you have evidence customers will pay for your product or
service, that alone should be enough to keep you going. But
remember: Whether customers pay is not a yes-or-no question. You
need evidence of what Anthony calls the 4 Ps: a target population
for your product or service; that this population will not just
pay, but pay at the right pricing points; that, in addition, the
population will provide the necessary purchasing frequency (i.e.,
how often will this target population pay the right price for the
product); and, last but not least, that you'll achieve the
required market penetration to achieve viable revenue and
profitability goals.

3. Ask a dispassionate outsider.

As an entrepreneur, your brain is almost hard-wired not to quit.
You think optimistically, and you execute until you drop. For
that reason, you can't expect yourself to be rational or
objective about the ongoing viability of your idea. "Having a
cold-blooded idea assassin look at your idea is the best thing,"
says Anthony. "Find the natural skeptics, and have them pour cold
water over your idea."

Devil's advocates, he notes, get a bum rap. But if you know
someone who can play the role to perfection, they will open your
eyes to the flaws in your idea — some of which could be fatal.